The Customer-Centric Electricity Grid

Aug. 17, 2015
Freelance writer Jennie Lay describes how New York is developing the nation’s first customer-centric electricity grid under the leadership of Audrey Zibelman, chair of the Public Service Commission

Jennie Lay, freelancer for the Rocky Mountain Institute, describes how New York is developing the nation’s first customer-centric electricity grid under the leadership of Audrey Zibelman, chair of the Public Service Commission.

A two-plus-hour drive north from New York City along the Hudson River leads to the state capital of Albany. There the government buildings overlooking Empire State Plaza have become the front lines of regulatory reform for the nation’s electricity system. The electricity industry of the future is coming, and it’s probably coming here first.

In 2014, New York State launched Reforming the Energy Vision (REV), a regulatory proceeding aiming to rewrite from scratch how the state’s electric grid operates. Alongside traditional assets such as big power plants and transmission lines, for the first time in the nation’s history it will establish a market for customer-sited distributed energy resources (DERs) like rooftop solar, batteries, smart thermostats, and much more. This “distributed system platform” (DSP) places the customer at the center of the grid equation as never before.

“What’s so unique about REV is the creation of this new model and also the level of ambition and very fundamental regulatory transformation that New York is proposing,” says Lena Hansen, a principal in RMI’s electricity practice. “This is not by any means incremental. They’re taking a very whole-systems transformative approach.”

At the end of February, state regulators reached a major milestone in that transformation, officially issuing an order that lays out the regulatory policy framework and implementation plan for REV. Now it’s time to make it a reality, and a second phase, now under way, will determine how.

The Road to REV

Undoubtedly, major storms such as Sandy and Irene helped motivate NY REV. The widespread and extended blackouts they caused exposed vulnerabilities of the current grid, knocking out power for many customers for weeks, not just days.

“I heard one story of a woman whose grandmother had to walk down 26 flights of stairs to get water for days after Sandy. That gets to you,” says Audrey Zibelman, chair of New York’s Public Service Commission (PSC), the lead agency behind REV. “This is not the inconvenience of, ‘Oh, I gotta empty my refrigerator and freezer because the meat spoiled.’ This is, ‘I don’t really like the idea of my grandmother having to walk down a dark stairwell.’ I think it sort of drove home to folks the importance of having a resilient grid and how these extreme weather events, climate change, can really affect us.”

Grandmother had to walk down 26 flights of stairs to get water for days after Sandy…

But acute major events like Superstorm Sandy weren’t the only factors in play. There’s also recognition that customers’ relationship with the grid and their utility is changing in a big way. The traditional one-way delivery of electrons to end users like homeowners — and the monthly bills for that service — are giving way to a much more dynamic set of options that empower customers with choice for when and how they consume and produce electricity, how much that energy costs, how much carbon it produces (or not), and more.

In the February order, the PSC asserts that it will “embrace the changes that are shaking the traditional system and turn them to New York’s economic and environmental advantage.” The PSC goes on to say that distributed energy resources should be “on a competitive par with centralized options,” and that utilities will have a new role in developing and operating distributed energy markets.

The state is betting that those distributed energy markets — and the customer-sited technologies behind them — can be a fundamental part of achieving six main goals for the state’s electricity system that include: maintaining affordable electric service for customers (also implying stable and predictable prices), generating local jobs and investment, keeping energy dollars in the state that would otherwise leave to buy fossil fuels, reducing greenhouse gas emissions and air pollution from New York’s grid, and enhancing the grid’s reliability and resilience.

Audrey Zibelman, NY PSC chair

A Champion at the Helm

Major change such as this doesn’t happen without passionate, dedicated individuals behind it, and the face of that movement is the PSC’s Zibelman. One would be hard-pressed to find a better champion for NY REV.

Before she chaired the NY PSC, her resume reads like a greatest hits of all the key state- and national-level board and committee positions: the New York State Energy Research and Development Authority, National Association of Regulatory Utility Commissioners, U.S. Department of Energy. But she also brings decades of electricity industry experience to the table, including as founder and former president and CEO of Viridity Energy, developers of a software platform that “transforms how energy customers interact proactively and productively with the electric grid.” If anyone can guide New York’s grid through a major transformation, it’s Zibelman and her staff.

“I first met Audrey when she was still at Viridity Energy,” recalls Hansen. “Seldom have I seen someone so passionate about this important work of creating the customer-centric 21st-century electricity grid. She brings a drive and dedication well-matched to big challenges like this that would otherwise be overwhelmingly daunting to many people.”

Ever humble, Zibelman is quick to deflect credit to the PSC staff who are in the trenches daily making REV happen.

But Zibelman and New York aren’t going it alone. They also have a consigliere in RMI, which is serving as a strategic advisor to the state on REV. RMI brings to bear its deep expertise on electricity economics and rate structures, utility business models, and state regulatory frameworks. A unique asset, too, is the RMI-convened Electricity Innovation Lab (e-Lab), which directly and comprehensively tackles the challenges of building a 21st-century electricity grid that’s efficient, clean, affordable, resilient, and rich in customer-sited distributed technologies.

“What New York is trying to do has largely not been done before, so there’s a big need to think creatively and holistically about what the solutions actually are that they should be considering,” says RMI’s Hansen. “We’re helping them with that. We’re helping facilitate conversations among the staff and also with national-level experts to whom we have access via our e-Lab. We’re serving as a conduit for good thinking from around the country into New York.”

Such thinking includes that of Richard Sedano, U.S. programs director for the Vermont-based Regulatory Assistance Project, an e-Lab member and nonprofit that advises public officials on energy policy and regulation.

The Evolving Utility Role

New York’s evolving electricity system may be customer-centric, but utilities still play a vital role. They will continue to manage and operate the grid, and they’ll take on the role of operating markets for distributed energy resources and integrating those resources into the grid. And they’ll also benefit from the services DERs can provide and help to optimize their value for grid and society, beyond the traditional value that typically accrues to the individual customer using distributed technology.

Of course, that’s all easier said than done. “It’s very difficult for organizations that have operated basically the same way for 100 years to shift the way they think about customers and resources and the way they think about their business model,” Hansen says. New York’s utilities are actively engaged with REV and figuring out how to make changes that meet society’s needs while remaining financially viable.

Customers’ relationship with the grid and their utility is changing in a big way. But the future grid still has a grid, and the state’s utilities will run it.

REV transforms technological progress into “the first chapter in a new story [for utilities] where they become the platform by which these new resources can be developed and used to the best interest of both the individual consumer and society as a whole,” Zibelman says. For example, utility Con Edison’s Brooklyn-Queens Demand Management project is pursuing myriad DERs as a cost-effective alternative to what would otherwise be a $2-billion substation upgrade. Just as New York City’s water supply saved billions of dollars by protecting upstate reservoir watersheds rather than building huge plants to clean up water after it got avoidably contaminated, ConEd is pioneering downstream, customer-focused, least-cost solutions.

“I think all eyes are on New York right now to see how the REV framework ultimately gets implemented, because that could be a game changer in a lot of markets,” says Mark Higgins, senior director and head of government and utility consulting at Stratagen, a clean energy strategy consulting firm. “You could see a lot of other jurisdictions try to adopt something similar if utilities are able to move to a new business model that proves to be successful while also enabling a robust, competitive market for DERs. That’s the market I’m following most closely; they’re creating a very innovative regulatory framework.”

Long known as one of the country’s traditional financial hubs, New York is now becoming a hub for electricity system innovation and entrepreneurship.

A Cradle of Entrepreneurship

With this new electricity marketplace also comes the opportunity for investment and entrepreneurship from tech companies. “NY REV anticipates transforming grid operations and customer options by enabling distributed energy resources to be fully utilized along the entire electricity value chain,” says Sunil Cherian, founder and CEO of Spirae, an innovative technology company that focuses on smart grid solutions, including grid integration of distributed energy resources. “This transformation [will] open up opportunities for business and technology innovation driving entrepreneurialism and investments.” In other words, New York and its Hudson Valley just might prove to become the ‘Silicon Valley’ of the electricity system.

New York and its Hudson Valley just might prove to become the ‘Silicon Valley’ of the electricity system.

Public-private partnerships like the New York State Smart Grid Consortium will play an important role, too, bringing together the utilities, entrepreneurs, policy makers, and researchers to find the most promising smart grid technology solutions and bring them to customers.

“The increased reliance on distributed energy resources, the majority of which will be privately owned, will also introduce a broad range of potential new stakeholders to the New York’s power markets,” says James Gallagher, executive director of the New York State Smart Grid Consortium. “REV will involve the introduction of advanced power technologies, sophisticated and expanded communication systems, smarter grid-integrated buildings, and improved tools that will allow customers to better manage their energy use and bills. The net result of all of these efforts will be a substantially smarter grid for New York State.”

The electricity industry of the future is coming, and it’s probably coming here first … placing the customer at the center of the grid equation as never before.

A Testbed for Innovation

Already, we’re seeing the first signs. Demonstrating the kind of on-the-ground program that is custom-tailored for REV, investor-owned utility Exelon Corporation and energy infrastructure developer Anbaric Transmission have joined forces to create a series of 10- to 200-megawatt microgrids at five sites throughout Long Island, New York City, and upstate New York.

At Skidmore College, one of the largest solar PV arrays in New York was completed in October 2014. It will generate an estimated 2.6 million kilowatt-hours per year, enough to meet 12 percent of Skidmore’s needs and reduce greenhouse gas emissions by the equivalent of taking 412 cars off the road each year. The project was designed to take pressure off the grid and help make the school’s system cleaner and more resilient, and was supported by Governor Cuomo’s NY-Sun initiative and NYSERDA.

Potsdam, NY
Credit: John Marino

On the Clarkson University campus in upstate New York, the Potsdam microgrid is being created by a partnership between the school, GE Global Research and GE Energy Consulting, National Grid, and the Department of Energy’s National Renewable Energy Laboratory. This microgrid will serve the entire community, powering essential services like the hospital, emergency service providers, housing, fuel, and food providers in the case of a power outage.

The state is making a big investment to ensure that projects like these are successful. In addition to the ongoing $1 billion NY-SUN initiative and $1 billion NY Green Bank, there’s also a $40 million NY-Prize competition for community microgrids and — just announced in April 2015 by the Governor’s office — a new $160 million Clean Energy Fund directly in support of REV.

Seeing REV fully blossom will admittedly take time. Such sweeping state regulatory reform doesn’t happen overnight. Which is why we can expect to see demonstration projects start rolling out this summer, as both a way to explore some of the cutting-edge opportunities REV will unlock and test and answer important questions before a broader state-wide rollout. For example, utility Iberdrola brought a team including community and university representatives to RMI’s March 2015 e-Lab Accelerator boot camp to speed along the first of what could become several smart energy communities to show what the REV vision could do if applied in a particular place.

The Road Ahead

This two-way flow of electrons, services, and values won’t happen without the communications infrastructure to relay all that data and decision making.

Adding a layer of IT to the grid is essential. Communication between the utility and customers becomes critical when distributed energy resources enter the mix. “Smart grid is a term you could interpret many different ways and means many different things, but at the most basic level, it’s a question of how you make the grid intelligent using IT,” says Dan Cross-Call, a senior associate in RMI’s electricity practice. “Which way are electrons flowing? Who is providing or consuming what energy services at what times in what places?”

“The technology will evolve. It’s evolving fast,” Zibelman says. “Our goal is really to make sure the government doesn’t get in the way by regulatory models that are old-school rather than new-school. We don’t want the regulatory [piece] to be a drag on the transformation.”

“Nobody wants the utilities to go bust,” Hansen adds. “That would be good for no one.” The future grid still — crucially — has a grid, and the state’s utilities will run it. Distributed energy resources like rooftop solar will be a part of that grid, and REV’s innovative platform will ensure that they’re an integral part of a strengthened, resilient, affordable, cleaner grid.

Long Islander and New York native Billy Joel famously sang in his 1976 song that he’d “seen the lights go out on Broadway.” With NY REV ushering in the grid of the future, those lights may stay on … powered by the sun, first-of-their-kind customer-centric energy markets, and a whole new way of planning for and operating the state’s electricity system.

This article originally appeared in the Summer 2015 issue of Rocky Mountain Institute’s magazine, Solutions Journal. Reposted with permission.

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